Monday Research & Trades — SMSI, FB, HMNY, GAIA, WDAY, ORCL, & FTSSF

Long-time readers should note some significant changes in how I communicate in the public domain. The primary purpose of this forum is now to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.

Accordingly, this document should not be construed as an endorsement or recommendation of the companies or securities discussed herein. I am not an investment advisor and this is not an investment thesis. It is merely one part of the story, which I present for debate in hopes of determining all risks and upside potential. The disclosure at the end of this piece is critical to understanding the content of this document. Further, I frequently trade my positions and may buy, sell, or short the securities mentioned herein at any time, regardless of the facts or perceived implications of this article.

 

Monday Trades

Among my trades today, I sold some Facebook (FB) in the AM because it was acting weak as compared to the market. However, I bought it back when the FTC news broke (and the stock fell to -5% on the day). The stock hit the bottom of my risk/reward channel and I suspect that the FTC news was anticipated (I certainly expected it). That worked nicely and more Wall Street firms have come out in support of FB. I agree with them and don’t see this as an issue that justifies the 23% correction we’ve seen in the shares.

While writing my latest update on Smith Micro (SMSI), a reader informed me that their Sprint product has now gone over 100,000 downloads. I estimate that Sprint only had 350,000 customers on their old product, so this appears to be significant progress. In addition, my analysis is coming up bullish. I believe that 1) Sprint is totally committed to SMSI, 2) the negative reviews represent a tiny % of the total downloads and are being used by SMSI to work out any leftover bugs, 3) a major new release is coming in June, 4) Sprint will stop supporting the old product in 2 months, and 5) SMSI’s Q2 will include revenue recognition from Sprint, marking the first of many quarters of accelerating quarter/quarter and year/year growth.

Accordingly, I increased my position again today, extending its lead as my largest position.

GAIA submitted a filing with the SEC, disclosing that its CFO bought 12,000 shares in their offering. Before the offering was finalized, GAIA said that insiders expressed interest in participating… and they did. That’s bullish. Alongside that, B. Riley gave the stock a $23 price target. My chart supports that target, but not until year-end. So, with the stock up 12% this morning (and hitting the top of my risk/reward channel again), I sold the extra shares I bought last week at a nice profit and sold some April 17.50 calls at an average price of $0.70. I remain bullish, but think the stock just needs to breathe a little before moving substantially higher.

Finally, I covered a quarter-million dollar short against the S&P 500 when the index pulled back to “only” being up 0.7% this morning. It was a small position in my portfolio, but served as a hedge/placeholder. With the S&P now up 2.7%, covering that short saved me $5,000. Adding that to my new purchases, I’m now more long than I’ve been in awhile. Hopefully, the market rebounds further from here. Many individual stock charts appear ready for it.

 

ORCL Succumbing to WDAY?

Oracle (ORCL) reported a rough quarter. SaaS revenue missed estimates and growth has slowed significantly. The stock was down 10% on the news. This is in-line with my thesis that Workday (WDAY) – and Saleforce (CRM) for that matter – have now become large and robust enough to make a real dent in ORCL’s business.

Based on industry discussions, ORCL doesn’t have a true native Cloud product set… and I hear that SAP’s tech is even more dated than ORCL’s. This sets the stage for WDAY (and others, like CRM) to continue gaining market share.

I continue to own WDAY and remain vigilant for short-term opportunities to optimize profits by occasionally sell covered calls when the stock is high, buying more when it is low, etc… all while keeping my positive long-term view in mind.

 

Speculating on First Cobalt (FTSSF)

I bought some FTSSF a few weeks ago on the news that Apple (AAPL) was looking to lock up supply (indicating that demand might be increasing and/or supply might soon become tight).

Monday AM, they announced some positive exploration news. Also, a Google search shows that cobalt is seeing interest and that China is an issue in the market for cobalt. Add its potential as an inflation hedge and everything seems to point in a positive direction for First Cobalt.

Of course, I’m no metals / mining expert, so I’m keeping my investment small. However, it seems like a good bet and the chart looks good.

FTSSF

 

MoviePass: Being Bearish Doesn’t Make Me A Bear

Here’s an updated / edited version of something I published (in the comments section of one of my posts, I believe), about a week ago. There are some new data points and thoughts here:

I have nothing against MoviePass. Personally, I like Ted. We had breakfast across the street from my home a couple months ago and I offered to assist with some yellow flags I saw coming up. That offer still stands. Aside from my volunteer coaching, I have plenty of time to give (as many of you already know).

  • Just so it’s 100% clear and publicly disclosed (which can serve as evidence against me), I am not short HMNY. Also, to my knowledge, nobody I know is short HMNY. Those comments are true going back as far as the launch of this blog. I am simply covering this story, which I find fascinating.

 

  • Of course, the coverage also attracts readers, many of which are professionals who have reached out to me to collaborate on stock research (which is the goal of my blog). This is NOT a stock picking blog. It’s a blog for collaborative research.

 

  • 100% of my research stems from data points provided by MoviePass / HMNY management, coupled with publicly-available information. My intent is not to smear the company. I’m simply extrapolating. If those calculations turn positive, I’ll be the first to write about it.

 

  • Similarly, if management wishes to walk through my findings with me, I’m happy to do so. However, my last few communications went unanswered, so I gave up trying.

 

  • At this time, I do NOT believe that MoviePass is at risk of going bankrupt. That would require a debt load. Of course, a bankruptcy concern may arise if they can no longer attract equity-based funding. This will become a threat if their new customer sign ups aren’t enough to offset their ongoing losses and deferred revenue liability. The latter issue can’t be understated. I believe that will become increasingly apparent when HMNY’s 10-K is released in the coming weeks.

 

  • People are speculating about MoviePass’ mysterious big backer. Personally, I believe it to be HMNY. They hold an anti-dilute right that was written in such a way that it discourages outside investors. I know, because I was invited to participate in a late-2017 funding round. Upon reading the anti-dilute segment of MoviePass’ agreement with HMNY, I decided to not follow up on the investment.

 

  • NONE of what I said above is meant to sound negative about the company. I do believe that there’s a path to success. However, I also believe that the business metrics, as publicly stated by management, demonstrate a worrisome trend that will require a level of financing that will dilute common shareholders beyond the ability to profit from their investment, even if MoviePass is ultimately successful.

 

  • FYI, in order to be truly influential, I believe MoviePass will need to have at least 5% of all movie-goers as customers. That’s about 12M subscribers. Interestingly, that’s the same number that Canaccord mentioned in their report. Of course, I take Canaccord with a grain of salt, but they are bullish and saying this. The bad news is that MoviePass isn’t expected to have 12M subs until 2022. By that time, they will have presumably gone through numerous new rounds of funding, each of which requires a growing number of shares to raise $100M (because the shares have been dropping some 35% after each round).

 

  • The latest interviews show that MoviePass is mainly getting revenue from small theater chains. That’s what I expected and not good news for their hopes further upstream. As I observed long ago, MoviePass is the ally of small theaters (who are desperate for market share) and therefore the enemy of mid- to large-sized chains (from whom the small chains want to steal share).

 

  • Further, MoviePass’ future revenue prospects have been shrinking. They’ve admitted that they don’t have data, so “Night At The Movies” is a pipe dream at worst and a distant possibility at best. Trends with the small vs. large theaters shows that MP won’t get 20% from as many theaters as people expect (unless they can attract 12M customers). The big 5 studios aren’t going to give them a cut, because they have zero reason to pay (or fear) MP. People will go see Avengers no matter what.Finally, and probably least important, those expecting a credit card aren’t considering that 1) that requires a credit check, which is easy enough, but not something MP is set to do and 2) much more importantly, the credit card landscape has suddenly become significantly more competitive, with Amazon possibly leading the way. People aren’t going to take a credit card from just anyone (and besides all of that, the $$$ numbers simply aren’t big enough to move the needle for MoviePass anyways).

 

  • The only good news I see on the horizon is that my utilization estimate for March is 1.8 movies per subscriber per month (down from 2.3 in February) and 1.4 for April. That could possibly create a tradeable bounce for the shares. However, that appears to just be the calm before the May/June/July storm (when my model has utilization jumping back over 2.0 again). Personally, I won’t be trading it, because the blockbuster season is starting to become anticipated. As a reminder, I believe anything over 1.3 is fatal for their long-term viability. As long as they stay above that number, investors can expect a growing number of dilutive financings.

 

Conclusions: If these issues turn positive, I will likely go long and/or be the first to write about it. To be clear, I WANT MOVIEPASS TO SUCCEED.  I like the service. I like Ted Farnsworth. I love the story… but I simply cannot ignore what the numbers tell me and falsely cheerlead a business model that is not 1) demonstrating the efficacy that was originally described and 2) showing an acceptable path to profitability for common shareholders.

 

 

Some Random Data Points From The MoviePass Survey

A few weeks ago, I was going to do a piece on the MoviePass survey data. However, more important things have come up. Plus, I viewed the data as negative and I’ve been beating them up enough. However, to avoid letting the data go to waste, here are the raw notes I was assembling:

11% of Americans are frequent moviegoers

MoviePass has only signed 1% of Americans

So, it’s highly likely that, about 25% of Americans “interested” in MoviePass (11% – 1% = 10%… and then, 10% / 40% = 25%) are frequent moviegoers, since most (if not all) frequent moviegoers should be interested in MoviePass.

Looking at it from another angle, the survey results suggests that 42% of Americans spend over $11 per month on movies (I estimate the average to be closer to $23). Now, think about that. Only 48% are interested in MoviePass (including those that already signed up), but 42% of Americans are likely to attend an average of 2 movies per month.

Of course, MoviePass says that their customers double their moviegoing when they get a MoviePass, so those 42% of Americans are liable to attend four movies per month if they get/have a MoviePass (even accounting for those who already have one). That’s about six times as many people as MoviePass ever expects to sign up.

Thankfully, I found the survey data to be skewed. However, even accounting for the biases, this data corroborates all of the other data I have seen of late. It all points to heavy losses throughout the spring and a high likelihood that the company needs to raise another $100 million before the first day of summer.

Survey

 

 

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Disclosures / Disclaimers: I am long SMSI, FB, WDAY, FTSSF, and GAIA. I am also short the GAIA April 20 17.50 calls. I have no position in HMNY, nor have I traded the stock since launching this blog. Further, I am not aware of anyone who has been short HMNY or its derivatives since launching this blog. This is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this article.

I am not a financial advisor. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this article.

I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter.  Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.

I wrote this article myself, and it expresses my own opinions. I am receiving no compensation for it, nor do I have a business relationship with any company whose stock is mentioned in this article. The information in this article is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

The primary purpose of this blog/forum is to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.

41 thoughts on “Monday Research & Trades — SMSI, FB, HMNY, GAIA, WDAY, ORCL, & FTSSF

  1. Re: Cobalt

    I have been getting heavily into Cobalt since the end of last year. I have positions in USCFF and ECSIF currently and this will be my main area for new cash to go to (aside from MBRX and watching my losses in HMNY).

    Sadly USCFF is one of my smallest positions and after the take over by First Cobalt I’m now up 120%. I’m holding onto the shares for the FTSSF conversion and planning on buying more.

    ECSIF (E Cobalt) from my DD is my favorite by a long shot for being able to have a mining operation up and running in Idaho and offloading to US companies. They are still testing samples but do have equipment and locations ready to go from old mining activity. From a technical perspective they are just bouncing off of the 200dsma as well.

    Here is a video from late last year on ECSIF: http://www.proactiveinvestors.com/companies/stocktube/8441/ecobalt-looking-for-offtakers-to-help-finance-construction-of-very-rare-idaho-cobalt-project-8441.html

    Liked by 1 person

      1. US and Canadian Cobalt is tough with so many “shell” companies out there, which is honestly why I had so little in USCFF and then BAM! buyout and up over 100% oh well can’t complain.

        ECSIF IMO has the chance to get the product to market the fastest in the US.

        Unless you count stockpiling existing Cobalt like Cobalt 27: https://www.bloomberg.com/news/articles/2018-03-13/this-commodity-cowboy-is-hoarding-the-world-s-cobalt-supply

        Liked by 1 person

  2. Hey Mark, I was looking at the Q4 earnings of Gaia, and I saw a statistic that reminded me of Moviepass, but not in a good way. It says Customer Acquisition Costs as a % of revenue declined to 87% in Q417 from 95% in Q416, and if I understand that correctly, it means they spend .87 to get $1 in revenue. Even if revenues are ramping and this # is going down slowly, I am a bit surprised at your bullishness. Am I misinterpreting this #?

    Liked by 1 person

    1. Yes. I would say that you misinterpreted. The difference between Moviepass and Gaia is that it costs Gaia almost $0 to support a customer.

      So, once they get back their acquisition cost from that customer, every dollar they get from the customer is almost 100% profit until the customer decides to non-renew (and nearly 100% renewal month after month after month).The key to analyzing GAIA’s acquisition costs is to look at it on a per-new-subscriber basis and compare that to the lifetime profitability of each customer. Last name point, Gaia is very happy with the metrics, which is why I believe they did the offering (to accelerate new customer acquisition, because their ROI on that upfront investment is coming in well ahead of expectations).

      This is why the stock shot up after they did the $15 offering, instead of going down. It’s also why the CFO decided to invest $180,000 of his own money as part of the offering.

      TOTALLY different dynamics. GAIA is basically a niche version of NFLX. I can envision them being acquired by Amazon or Netflix. It would be an easy and lucrative acquisition for either one.

      Liked by 1 person

  3. What is the purpose of saying you sold FB at open and bought at day low? To imply you can time the market? If that’s the case, you wouldn’t have bought FB on March 19.

    I appreciate your blog on the analysis side, but saying you bought and sold a stock after the day is over is meaningless. Anyone can write how they sold at the top and bought at the bottom every day.

    Just my opinion and suggestion on the blog site

    Like

    1. I appreciate the feedback. The problem with journaling-style posts is that The writing comes intraday and is unscripted / unedited. While there can be value in that, there will also be a decent amount of useless content (as you fairly pointed out). I’ll keep that in mind in future journal-type posts and perhaps edit some things out before sending.

      Just keep in mind, 1) if I get the post out early enough, some of my trades can be caught and 2) editing takes time away from my day. I sacrifice a bit of style (and sometimes substance) to provide more quantity of important analysis (even if some of it has a limited shelf life).

      Final point – getting out and back in wasn’t a day trade per se. I didn’t expect jump back in today, but the way it reacted to the FTC announcement made me believe that the bottom might be in.

      The matter what, I hear what you’re saying and I do not disagree. Cheers.

      Like

  4. After the disaster which was $HMNY last offering, management must know that any future secondaries will be at least as bad or worse. Would it more advantageous or even possible for them to issue debt rather than stock?

    Like

      1. I think they could, but they need a key person who can sell and negotiate debt for them. They clearly have nobody with any talent in this area. I have seen this before. Companies with no access to debt bring on the right person who is well connected and able to sell it and they are able to get some small deals that build into larger deals later.

        Like

  5. Thanks as always, Mark. Will you be posting your latest update on SMSI soon? I’m eager to read what you have in mind.

    Best.

    Like

    1. I’m doing my best. I want to make sure I do a good job. Today was tough because I took the kids I volunteer-coach to meet my Olympian teammate. I’m now catching up on email and will see where the night takes me :^)

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  6. You can’t seem to make up your mind about MoviePass. Now the math is suddenly starting to work? For the record, I’ve also been in touch with the company and offering my consulting services. From day one, I believed in the MoviePass vision and it’s ability to become a $10B to $50B company because I see the future mix of users not only shifting towards “casual” users but to an even more profitable group of “seldom” users who currently visit the movies 0-3 times a year. That’s right as low as ZERO.

    It is absolutely warranted to invest a minimum of $1B capital in this opportunity. As brand penetration grows and becomes more ubiquitous, different types of users will join for reasons that have ZERO to do with saving money. I’ve done extensive research on this and have found that MoviePass can tap into these seldom users because they WANT THEIR BEHAVIOR influenced. They want to get out to the movies – but they currently don’t. LITERALLY DO NOT GO AT ALL or max 3 times a year. These users who are generally older, more affluent, and find it difficult to go out to the movies care not about saving money but they care about going to see more movies. You see – when you put a little money down, it can influence your behavior. These users will look back after a year and say “yeah, I lost money on this deal, but I won’t cancel. Thanks to MoviePass I saw 3 movies this year with my wife! Without this financial incentive (of paying monthly), I wouldn’t have gone to ANY”

    As I said from day one, this investment is all about MANAGEMENT, BRAND, INDUSTRY, and MOAT.

    I still have some concerns about the proxy nature of the investment and the ability of management to sell their vision to wall street. They deserve $1B+ funding at good valuations. So far they haven’t been able to get the right valuations. This either comes down to issues of proxy or lack of faith in management. It has NOTHING TO DO WITH MATH. At scale, and at ubiquitous brand penetration, the math works – and it will work very well. Any financial model is only as good as the assumptions put into it. Mark – your financial models which you have referenced time and time again are based on negative assumptions based largely on your opinion. My model is also based on my opinion that the util rate will dramatically decrease as MP’s brand grows and they get more casual users and yes a ton of seldom users.

    You have to have an opinion, a thesis… a belief or lack of belief in management and the vision and then stick with it. Analyzing the math on a daily basis so early in the game is NOT the right way to assess the opportunity unless you are tactically trading and looking for good entries. If you are successful at that, more power to you! I for one will not risk losing via short-term trading for an opportunity which yes can become like Netflix.

    Until then, I do continue to have major concerns regarding proxy and some about management but overall, not enough to make me sell. Holding and if I see what I want on the restructuring front, will add more at that time. Today’s news is insignificant to me. Should have been baked in. If it wasn’t, it’s cause most simply don’t understand the business well.

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    1. You obviously didn’t read what I wrote. Either that or you don’t understand the analysis I’ve been doing from the start. Nothing has changed. Only a lull in the movie slate for the next few weeks.

      TO BE CLEAR…

      1) I did NOT say the numbers were working. THEY ARE NOT.

      2) I only said that there might be a tradable bounce because of the lull in the movie slate over the next few weeks. That lull might make it SEEM like things are getting better. NOTHING MORE.

      3) Come May, they will have a nasty three month slate of movies to face, which I believe will lead to multiple rounds of funding over that three months.

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    2. Next, you’ll be saying at the stock fell so far because of my blog 😂

      I’m a 20 year veteran of analyzing public companies with subscription models. I’m long WDAY and GAIA. Trust me, I get it… and I’ve been consistently right on this stock as a result.

      You telling me that I don’t understand is like me telling an NBA player that he doesn’t understand basketball — it’s disrespectful, but doesn’t upset me because you just look silly for saying it.

      Liked by 2 people

      1. so it’s disrespectful for there to be a market with different opinions? You may be right to be bearish but you are absolutely incorrect as to the reason why. This is a business which works at scale and which requires significant capital investment. The problem to date has been management’s ability to sell their vision perhaps aggravated by a proxy.

        Yes I agree they will have to have many additional funding rounds but there is a very bullish case to be made about the math of the business model if you plug in different assumptions than you did. I assume the util rate will drop to ~1 because at scale, their business will attract enough seldom and casual users to more than offset the avid users. You have given no compelling evidence to the contrary. I fully expect most users to be avid at this stage in the product’s evolution. It is not a bear argument to tell me that utilization rates are high in year one.

        Bottom line, you have a bear OPINION on the business model. You do not believe they will attract enough casual and seldom users to make the math work. This is your belief and that’s fine. We agree that the business will have many additional raises to come but we disagree that this is automatically a bad thing. You can look at it as dilution – I look at it as INVESTMENT. The company has done a terrible job selling their vision in order to attract enough competition in their capital-raising activities to get good valuations. It’s not about today’s math, it’s about their PLAN on selling a vision in which the math works.

        In the future, if you present some math, be sure to explicitly state which variables are your assumptions based on your opinion or based on empirical evidence. Far too often you try to present things as FACT when they are not. You give a list of a a dozen facts and then you throw in an assumption in there for the future and that colors the entire projection towards your opinion. I can also play that game with numbers but I won’t. The fact of the matter is, it’s too early in the game. This is all about management and their ability to sell their vision and raise capital at attractive valuations. They have failed in this regard so far but I believe things could get substantially better when proxy is out of the way.

        Hope we can find some common ground here.

        Like

        1. Your different opinion is WELCOME (very very), as is debate… but telling a 20 year pro that they don’t understand their job is a bit disrespectful.

          My experience doesn’t make me right, but I definitely understand what they’re trying to do… and I have said that they CAN succeed at it!

          The capital structure is the problem I have had. I believe their funding requirements will make it impossible for shareholders to make a profit beyond a trade… and possibly impossible for them to get the amount of funding they’re going to need to get over the hump, as a result.

          No backers, no valuation. No valuation, no access to the $billion required to see if the model works.

          That’s all.

          Anyone who doesn’t get that from my writing should LMK, because I’m writing it wrong if that’s not been clear.

          Liked by 1 person

        2. “I assume the util rate will drop to ~1 because at scale, their business will attract enough seldom and casual users to more than offset the avid users. You have given no compelling evidence to the contrary. I fully expect most users to be avid at this stage in the product’s evolution.”

          I can’t think of anything more compelling than the population (35M) and distribution of frequent users and the likelihood that the company can kep enough of them away long enough to sign enough non-frequent users to get the utilization rate under 1.

          The survey data corroborated this in a big way. I think it’s important to NOT make a base-wide utilization assumption without breaking it down into freq vs. non-freq and building the blended average from there. It’s too easy to just SAY it will get down to 1. Mgt SAID the first cohort would get there in five months… but that didn’t make it happen. In fact, it didn’t.

          “It is not a bear argument to tell me that utilization rates are high in year one.”

          If it scares away the institutional support (which it has), it absolutely is a bear argument. Great business models aren’t great if they can’t attract sufficient trust and capital from investors. I’m sure that you and I could come up with a dozen disruptive business models for numerous industries in a single evening. Almost anything is possible with enough cash… but that’s why capital planning / fund raising is a part of the business model for companies like this. If they can’t get it, the model doesn’t work.

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      2. I definitely agree with this: “The capital structure is the problem I have had.”

        Would be great if we can have some more discussion about this. Why they failed initial 3/31 IPO goal. What their options are now. How market will react when resolved. Seems to me they are heading towards a full merger but some new backdated SEC documents uploaded last night point to another possibility. Some very interesting letters back and forth with the SEC.

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      3. By the way maybe I mis-took your comment. When you say you have a problem with the capital structure are you also referring to the corporate structure and proxy issues?

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        1. I actually have no problem with the proxy issue, EXCEPT for the fact that HMNY’s specific anti-dilute clause makes it virtually impossible for anyone to smartly make a direct investment in MoviePass.

          I don’t love the corporate structure either. I think we both agree that a real CEO and CFO are needed (along with better corporate governance). I see Ted as a CMO and Mitch as a COO (exploring EXACTLY what he did at RedBox reveals why I feel that way).

          Frankly, the lack of those two Cs may have led to the misexecution of the vision.

          From the start, I believed that the model could work. However, as you’ve stated, it requires capital to build the required scale. 1-2% penetration won’t do it… and they’re liable to burn $500M before getting to the 2% level.

          All of that erodes institutional confidence, hurting the valuation, making $1B of funding a virtually impossibility without diluting common shareholder to a level that even a $10B valuation won’t resolve… and without that institutional valuation support (which companies like NFLX, AMZN, and TSLA have had since day one, regardless of the reason) the vision simply can’t be realized.

          For me, the numbers in my model signaled that institutions would encircle HMNY like vultures instead of angels. Utilization has not evolved as they promised. It IS evolving, but the pace is VERY important as explained in the VC blogs I’ve shared.

          This is just one of a few major reasons why the numbers DO matter… they show us whether the model is working as expected (“as expected” being the key term) and whether mgt is executing… and without those two things, I knew that institutions would turn their backs.

          Sure enough, instead of getting Goldman, UBS, or JP Morgan, they got Maxim and Canaccord (and the managing director at Canaccord wasn’t even willing to headline the initiation piece).

          As an industry player, I know the how the industry players play… and they don’t play this. I understand your idealism and truly believe that you would back them for $1B if you had $2B to your name… but institutions have boundaries and this doesn’t fit within them.

          Question — In your assumptions, how many subscribers will be needed for them to have true influence? And at that level, what % of the base will be frequent users? And therefore, what % of frequent users will they have penetrated?

          Those are critical numbers. A key difference we have is that I don’t see MoviePass signing a sufficient # of casual users without attracting a detrimental % of the 35M frequent users, all of whom should want to sign up before a meaningful number of the casual users do.

          Like

      4. Frequent users are already spending far more than MP charges at 9.95 monthly or $115 or $90 annually. So I don’t think we really know if they are attracting a detrimental % of frequent users just because they “should” want to sign up. At what price point do casual users sign up at the same pace as frequent users? Do frequent users sign up at a slower pace when the price is 9.95 or 115 annual vs 90 annually? If every frequent user should want to sign up, why haven’t they? Obviously not everyone has heard about it or they would. Right? So why test the $115 annual and then go back to the $90 annual? My theory is at $115 the pace of new subscribers slowed down more than expected and that slow down was primarily with casual or seldom users. Why do I think that? Because the only thing that changed was price. So a frequent user who just found out about MP is more likely to sign at $115 than a casual user. Now the price is $90 again. The pace of new subscribers now doubles. Who caused it to double? Casual and seldom users because again, the price is not a deterrent to the frequent user. My point. You could be way off on your assumption about the mix of frequent vs casual users signing up, especially at the current price.

        Like

        1. That’s a very good opposing view.

          FYI, my switch to a bearish view was and has been based on the trajectory of utilization.

          If the customer mix becomes more favorable, the utilization data should show us that. In the meantime, all we can do is speculate/debate, which should enable us all to react more quickly to future data.

          Like

  7. Hi Mark — do you have any update on 22nd Century Group (XXII)? I haven’t seen you mention them for a while now. I assume you are still invested (unless I missed something).
    Cheers and thanks!

    Like

    1. I got out of XXII awhile ago, with the exception of writing some April call and puts (under the assumption that the stock would remain mired between 2 and 3 for the duration).

      It was never a big position and I’m not sure if I provided an update regarding my position (I may or may not have). If I don’t mention a company for a while, it’s always fair to ask about it. Cheers.

      Like

  8. Ben…the capital structure can sink the common stock shareholder even if the co is successful. They have not shown that they can secure capital anywhere near good terms. This is a major problem. They also haven’t secured any major deals with the top theater chains. Without good capital structure, the common shareholder will lose whether they become successful or not. Without the big chains signing up, MP will fail. It’s kind of a race…what’s going to happen first? The sub leverage or not being able to raise anymore money.

    Liked by 1 person

  9. Hey Mark, I might be misunderstanding something but something strikes me as weird. The announcement today that Landmark will now accept Moviepass. Wasn’t one of the advantages of using the Mastercard model that theaters (like AMC) couldn’t reject them? How then would Landmark be able to “not accept Moviepass” until this deal was signed?

    Unless I’m missing something, that just doesn’t make sense. What makes more sense to me is that Landmark theaters weren’t initially includes in Moviespass’ product. Probsbly because it was niche…who knows. But that would mean it was Moviepass that added Landmark, and not the other way around. But if thats the case, it just would have been easy to release that press, “Moviepass now includes Landmark, yay!”. I am really wondering why it was released the way it was.

    To me it just doesn’t add up. Any thoughts?

    Like

    1. As I understood it, “Through this agreement, MoviePass will be integrated into Landmark Theatres’ ticketing system.”

      Key word = “integrated”. Most theaters don’t have MoviePass connected into their back-end software systems, but doing so enables things like e-ticketing, advanced screening reservations, and in-app seat selection (as opposed to just buying tickets with the card at the theatre window / kiosk).

      Like

  10. Quick question Mark,

    I want to know if my math is wrong here. I’m trying to analyze the churn rate for March:

    I got these numbers from:
    http://www.boxofficemojo.com/monthly/?view=releasedate&chart=&month=3&yr=2018

    There are only a few days left in March and total box office currently is 361,472,273. Let’s say this goes up to $380 in a few days (end of month)

    $380,000,000 total box office. Moviepass has stated they control 6-7% of box office currently.

    Assuming those numbers:
    (I’m going to assume that they control 6.5% now)

    6.5% * 380,000,000 = 25 million (rounded up)

    I am estimating they are getting close to 3 million users now but not there yet. Let’s say about 2,700,000 subs now.

    2,700,000 * 11 (average price of ticket) * 1 = 27,000,000

    This implies a utilization rate of less than 1 for the month of March!? (Also not stating here that this won’t go up the following month, but just wanted to see what you think) — Is my Math off?

    Like

    1. Actually nevermind, i just realized my math is a bit off because that boxoffice website is not including movies that were not released in march.

      Upon Examining the weekly numbers instead. We get a total box office revenue for the month of March closer to 770,000,000 – 790,000,000. Makes more sense.

      Like

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